Best of the Week
Most Popular
1. 2019 From A Fourth Turning Perspective - James_Quinn
2.Beware the Young Stocks Bear Market! - Zeal_LLC
3.Safe Havens are Surging. What this Means for Stocks 2019 - Troy_Bombardia
4.Most Popular Financial Markets Analysis of 2018 - Trump and BrExit Chaos Dominate - Nadeem_Walayat
5.January 2019 Financial Markets Analysis and Forecasts - Nadeem_Walayat
6.Silver Price Trend Analysis 2019 - Nadeem_Walayat
7.Why 90% of Traders Lose - Nadeem_Walayat
8.What to do With Your Money in a Stocks Bear Market - Stephen_McBride
9.Stock Market What to Expect in the First 3~5 Months of 2019 - Chris_Vermeulen
10.China, Global Economy has Tipped over: The Surging Dollar and the Rallying Yen - FXCOT
Last 7 days
US Overdosing on Debt - 19th Mar 19 -
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19
Gold Price Confirmation of the Warning - 18th Mar 19
Split Stock Market Warning - 18th Mar 19
Stock Market Trend Analysis 2019 - Video - 18th Mar 19
Best Precious Metals Investment and Trades for 2019 - 18th Mar 19
Hurdles for Gold Stocks - 18th Mar 19
Pento: Coming QE & Low Rates Will Be ‘Rocket Fuel for Gold’ - 18th Mar 19
"This is for Tommy Robinson" Shouts Knife Wielding White Supremacist Terrorist in London - 18th Mar 19
This Is How You Create the Biggest Credit Bubble in History - 17th Mar 19
Crude Oil Bulls - For Whom the Bell Tolls - 17th Mar 19
Gold Mining Stocks Fundamentals - 17th Mar 19
Why Buy a Land Rover - Range Rover vs Huge Tree Branch Falling on its Roof - 17th Mar 19
UKIP Urged to Change Name to BNP 2.0 So BrExit Party Can Fight a 2nd EU Referendum - 17th Mar 19
Tommy Robinson Looks Set to Become New UKIP Leader - 16th Mar 19
Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - 16th Mar 19
Towards the End of a Stocks Bull Market, Short term Timing Becomes Difficult - 16th Mar 19
UKIP Brexit Facebook Groups Reveling in the New Zealand Terror Attacks Blaming Muslim Victims - 16th Mar 19
Gold – US Dollar vs US Dollar Index - 16th Mar 19
Islamophobic Hate Preachers Tommy Robinson and Katie Hopkins have Killed UKIP and Brexit - 16th Mar 19
Countdown to The Precious Metals Gold and Silver Breakout Rally - 15th Mar 19
Shale Oil Splutters: Brent on Track for $70 Target $100 in 2020 - 15th Mar 19
Setting up a Business Just Got Easier - 15th Mar 19
Stock Market Elliott Wave Analysis Trend Forercast - Video - 15th Mar 19
Gold Warning - Here Are the Stunning Implications of Plunging Gold Price - Part 1 - 15th Mar 19
UK Weather SHOCK - Trees Dropping Branches onto Cars in Stormy Winds - Sheffield - 15th Mar 19
Best Time to Trade Forex - 15th Mar 19
Why the Green New Deal Will Send Uranium Price Through the Roof - 14th Mar 19
S&P 500's New Medium-Term High, but Will Stock Market Uptrend Continue? - 14th Mar 19
US Conservatism - 14th Mar 19
Gold in the Age of High-speed Electronic Trading - 14th Mar 19
Britain's Demographic Time Bomb Has Gone Off! - 14th Mar 19
Why Walmart Will Crush Amazon - 14th Mar 19
2019 Economic Predictions - 14th Mar 19
Tax Avoidance Bills Sent to Thousands of Workers - 14th Mar 19
The Exponential Stocks Bull Market Explained - Video - 13th Mar 19
TSP Recession Indicator - Criss-Cross, Flip-Flop and Remembering 1966 - 13th Mar 19
Stock Investors Beware The Signs Of Recession / Deflation - 13th Mar 19
Is the Stock Market Still in a Bear Market? - 13th Mar 19
Stock Market Trend Analysis 2019 - 13th Mar 19
Gold Up-to-Date' COT Report: A Maddening Déjà Vu - 12th Mar 19
Save Fintech? Ban Short Selling. It's Not That Simple - 12th Mar 19
Palladium Blowup Could Expose Scam of Gold & Silver Futures - 12th Mar 19
Next Recession: Concentrating Future Losses & Bringing Them Forward In Time As Profits - 12th Mar 19
The Shift of the Philippine Peso Regime - 12th Mar 19
Theresa May BrExit Back Stab Deal Counting Down to Resignation, Tory Leadership Election - 12th Mar 19

Market Oracle FREE Newsletter

Stock and Finanacial Markets Trading Analysis Worth

Gold and Silver Analysis - Is the Fed All Talk?

Commodities / Gold & Silver Nov 18, 2007 - 04:10 PM GMT

By: Joe_Nicholson

Commodities “The power of the Fed to literally change the game… cannot be ignored. Anti-gold forces now stand as ready as ever to force a consolidation in precious metals. There's also a rising probability that the dollar will at last see at least a relief rally, which could have metals trading weaker … so, the game plan continues to be resisting the temptation to short without confirmation and using the 5-week sma in gold and the 5-day sma in silver to signal a major reversal. Curiously, a 38.2% Fibonacci retrace of the move off the summer '06 lows in gold would bring us back to the May '06 highs.” ~ Precious Points: Judgments Affirmed! November 11, 2007


The forces traced for months in this update continued to move the metals markets this week, with softness in gold and silver coming precisely from two factors this update has been warning about for the past few weeks. Weakness in gold began with strength in financials, which bottomed Monday and sparked a huge snapback rally in stocks on Tuesday, a rally that seems to have made rate cuts seem less likely. As expected, cracks in Europe continued showing this week, with the possibility for a cut in London and/or Frankfurt now a distinct possibility. This had dollar bouncing in the last half of the week and, as evident in the chart below, gold trading below the 5-week sma for the first time in a while, but something that's inevitable from time to time.

As posted in the TTC forums, a move to as low as $750 would still be a very healthy pullback in an otherwise rip-roaring bull market. The validity of the bull doesn't even come into question until the 50-week sma, currently about $675 in the front month futures. Silver, which had a similar week, is looking to set up a great entry point with support at the 50-day moving average at about $14. Failing this, there's strong support in the $13.50-$14 range.

So, while it seems the metals bull takes a much deserved rest and offers new sale price entries for buyers, let's quickly examine those forces that triggered the selling this week and see where they lead us. The single biggest headline of the week was the Fed quickly acting on the curious comments in its last statement and announcing the targeting of headline inflation. Recall the following statements from the November 4 ‘ Precious Points' update:

“The balance of risk could have remained tilted towards preventing fallout from impending housing foreclosures, and this would have been consistent with Bernanke's remarks of a few weeks before. That the Fed chose to explicitly cite high energy and commodity costs not only undermines their precious core inflation figure - which now seems to exist only for justifying low interest rates and creating implausible GDP growth figures - it also underscores a long-standing theme of this newsletter, namely that rising metals prices are anathema to a central bank because they tend to erode the credibility of fractional reserve lending and fiat currency .

“But, sometimes those in positions of authority simply have no good options and, when given the choice of igniting a parabolic rise in gold and oil or carefully acknowledging that its core inflation readings are fairly irrelevant to real world consumers, and are ultimately affected by the excluded items anyway, the Fed, it seems, takes the latter course. And whenever power makes hard choices, it's axiomatic that the alternative was even worse!”

So the Fed did a little bit of follow-through and did in fact “change the game” with its new headline inflation targeting. For the short term, at least, they continue to pump liquidity and are still likely to cut at least one more time in December or January, or whenever the credit markets oblige them to do so. In a widely publicized speech, Fed President Krozner is reported to have said, “reductions in the target federal funds rate tend to be associated with decreasing incremental benefits in terms of further mitigating ... risks and with increasing incremental costs in terms of the potential for inflation to increase.” What better way to get more bang out your rate cutting buck than to stymie expectations with hawkish rhetoric and a new headline inflation targeting policy?

But it wasn't the Fed that did the most direct damage to the metals this week, it was the rebound in the dollar. The fact that it occurred in an environment of significantly weak economic data and earnings forecasts indicates a technical move or shifts by speculators. Certainly the reduced rate cut expectations played a role, but with 100% odds priced in for at least one cut by January, the more likely culprit was weakness in foreign currencies, particularly against the yen. Given that the Fed is most likely closer to the end of its cutting and the BOE and ECB closer to the start, this could be a trend that establishes some momentum over the coming months. Obviously this would spell short term weakness in metals, but would be planting the seeds for future gains.

Ultimately, it's probably not a good idea to bet against Bernanke's policy goals and it's likely he'll have further tricks up his sleeve over the course of his chairmanship. In the meantime though, the relief rally in the dollar cannot yet be treated as a major threat and, as we've seen, there is strong support beneath this recent rise in the metals as we enter their traditionally strong season.

Demand fluctuations are often cited for the seasonality in gold, but the increase in money supply to accommodate withdrawals by holiday shoppers is another important factor, and the Fed has shown no signs of contracting the monetary base so far. We should continue to monitor the repo market for clues and, should gold find renewed strength in the days to come, watch to see if the 5-week sma acts as resistance. Even though $800 didn't hold as a floor, a prolonged sideways period at these levels would still be an important base for future rallies as it's unlikely, even if her gets it under some control, that Bernanke will ever succeed in getting the gold genie back into the bottle.

by Joe Nicholson (oroborean)

www.tradingthecharts.com

This update is provided as general information and is not an investment recommendation. TTC accepts no liability whatsoever for any losses resulting from action taken based on the contents of its charts,, commentaries, or price data. Securities and commodities markets involve inherent risk and not all positions are suitable for each individual.  Check with your licensed financial advisor or broker prior to taking any action.

Joe Nicholson Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules